The market the day before
The main American stock indexes ended the trading session on May 4 in a confident plus. The S&P 500 rose by 2.99%, reaching 4,300 points, the Nasdaq rose by 3.19%, the Dow Jones added 2.81%. All sectors included in the broad market index closed in positive territory. The leaders of growth were the energy sector (+4.15%), IT companies (+3.51%) and suppliers of raw materials (+3.24%).
Company news
- Advanced Micro Devices, Inc. (AMD: +9.10%) ended the first quarter with record revenue, noting revenue growth in all segments due to high demand. Management presented a positive guidance for the next quarter.
- Moderna, Inc. (MRNA: +5.81%) significantly exceeded consensus, reporting strong growth in quarterly revenue and profit due to large sales volumes of coronavirus vaccine. The company confirmed its forecast for 2022, assuming revenue growth due to high demand outside the United States.
- ArcelorMittal (MT: -0.37%) exceeded expectations for quarterly profit, which showed an increase of 1.8 times year-on-year. The company has increased the buy back program to $2 billion.
We expect
Following the meeting on May 3-4, the Fed is expected to raise the discount rate by 50 basis points (bp), to a range of 0.75–1%, and announced the beginning of the reduction of the balance sheet from June 1. The initial volume of QT will be $47.5 billion, and by September 1 it will be gradually increased to $95 billion. Thus, the portfolio will be reduced by about 6% of the current volume of $8.9 trillion. The regulator noted a decrease in economic activity in the first quarter while maintaining high inflation due to an imbalance between supply and demand. The overall price pressure, the load on supply chains and geopolitical risks will be taken into account in the forecast of the economy and in determining the future course of monetary policy. During a press conference following the meeting, Federal Reserve Chairman Jerome Powell said that he considers it appropriate to further increase the rate, but stressed that the expansion of the target range to 75 bp is not yet being considered.
A meeting of ministers of the countries participating in the OPEC+ agreement will be held today. According to Reuters, the main issue on his agenda is the discussion of a plan to increase oil production limits by 432 thousand barrels per day in June. Anticipating a slowdown in demand growth by 480 thousand barrels per day, to 3.67 million, OPEC raised the forecast of a surplus in the black gold market by 600 thousand barrels, to 1.9 million barrels per day. The revision of the guidelines was due to the conflict in Eastern Europe, high inflation and Beijing's zero tolerance policy for COVID-19. The meeting of the parties to the oil production restriction deal will take place against the background of the EU statement on the introduction of a phased embargo on the import of Russian hydrocarbons. On this news, oil quotes soared by 4.93% the day before.
- Trading on the Asia-Pacific exchanges ended with a slight decline: the Chinese CSI 300 fell by 0.15%, the Hong Kong Hang Seng lost 0.44%, the Japanese market is closed due to the national holiday. EuroStoxx 50 has gained 1.27% since the opening of trading.
- The price of Brent crude oil futures rose to $110 per barrel. Gold is trading at $1,868 per troy ounce.
In our opinion, the S&P 500 will hold the upcoming session in the range of 4240-4340 points.
Macrostatistics
Today, data on labor productivity in the US non-agricultural sector for the first quarter will be published (consensus: a decrease of 5.4% QoQ after an increase of 6.6% QoQ in October-December). In addition, information on labor costs will be released (consensus: 9.9% QoQ).
Sentiment Index
The sentiment index rose 5 points to 45.
Technical picture
Since the Fed's decisions following the May 4 meeting were fully embedded in market prices and justified, the S&P 500 showed a strong rebound from annual lows and reached the nearest resistance line at 4,300 points. The RSI has risen to the neutral zone, the MACD does not give signals for a reversal. In the short term, the benchmark may reach the 50-day moving average, located at the level of 4374 points. The morning futures for the S&P 500 index are trading at 4280 points.
Reports
This Thursday, May 5, the quarterly reports will be presented by the fintech corporation Block Inc. (SQ), formerly known as Square. The consensus assumes an increase in revenue by 16.4% YoY, to $4.23 billion, with EPS falling by 70.7% YoY, to $0.12, due to high development costs and the recent takeover of Afterpay. We believe that the company can demonstrate an increase in commission income from servicing transactions with Bitcoin in the face of increased volatility of the cryptocurrency market at the beginning of the year. Previously, this segment generated more than 50% of revenue. Block is actively diversifying its business, developing a line of solutions for retailers and expanding its presence outside the United States. Thus, the recent acquisition of the Australian company Afterpay and the launch of a business lending platform in Canada lay additional growth drivers, allowing you to maintain your position in the face of increased competition in the industry. Nevertheless, at the moment the company is trading significantly more expensive than its competitors (the P/E multiplier is 329.25 x with an industry average of 52.9x), which reduces the attractiveness of Block shares in the face of tightening financial conditions, despite the long-term growth potential.